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"Should Cameron persist [in this plan], chancellor Angela Merkel would abandon her efforts to keep Britain in the EU. With that a point of no return would be reached,” the source said.

Merkel’s opposition to changing EU rules on free movement may have influenced another decision by the UK over the weekend to drop quotas on EU migrants and instead plan to impose a ban on those who do not have a job or cannot support themselves after three months.

The Sunday Times says prime minister David Cameron, in an upcoming speech, intends to lay out his anti-immigrant ideas that would instead stretch EU rules “to their limits” in order to appease Merkel.

Merkel’s “point of no return” admission is significant because it is the first time she has floated the idea of a possible UK exit from the EU.

The German chancellor is not opposed to placing restrictions on EU nationals who abuse another member state’s social system but is firmly opposed to the fundamental right of free movement of people being curtailed.

“Germany does not want to touch the basic principle of free movement of persons within the EU,” said one German official.

The welfare abuse restrictions already generated controversy last year when the then EU commission for justice Viviane Reding warned against “unfounded wrong perceptions” about welfare tourism. Under EU rules, member states can ask an EU national to leave if they become a "burden".

UK politicians, including home secretary Theresa May and Ukip leader Nigel Farage, spoke out against potential mass migration in the run-up to lifting all restrictions on Romanian and Bulgarian workers in January 2014.

Tens of thousands of new migrants from the two countries were predicted to arrive in the UK after the 1 January 2014 date.

But UK government statistics showed that the number of Romanians and Bulgarians working in the UK from January to March 2014 had instead dropped by 4,000.

"The very modest number of Romanians and Bulgarians coming to work in Britain this year is in stark contrast to the inflammatory rhetoric of earlier this year,” the UK’s Chief Secretary to the Treasury told the BBC in May.

And in June, a leaked Home Office report found that EU migrants have had a largely positive effect in the UK. It also noted that some 2.2 million British citizens live in Europe outside the UK.

The migration rhetoric in UK politics is seen as an attempt by Cameron to stop voters opting for Ukip ahead of the national elections next year.

Opinion

We must not undervalue what a massive step the European Parliament vote represents. The hard work has paid off. We can take a moment to celebrate, but the hard work begins again for finalising strong protection for European whistleblowers.